Govt forcing advisers to be litigation funders: AFA

Financial advisers have become litigation funders in the way of the Australian Securities and Investments Commission (ASIC) levy, according to the Association of Financial Advisers (AFA).

The AFA said it was “disturbed” to see the expected increase in the corporate watchdog’s levy for the 2020-21 year and noted the cost per adviser had increased by 29% in the last year, and more than trebled over the last three years.

It had called on the government to remove the litigation funding element from the ASIC levy for financial advisers, or alternatively give them the benefit of any penalties that might be generated and substantially better visibility of what they had invested in.

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AFA acting chief executive, Phil Anderson, said: “As predominantly small business operators, advisers are being forced to invest a large amount of money into litigation against large institutions, many of whom are no longer even in the financial advice sector.

“There is no access to any upside for advisers on this investment, and a complete lack of visibility on what they are investing in and how those investments are performing.”

Anderson said while advisers were paying for the litigation, all penalties went straight into consolidated revenue.

“The Government is forcing advisers to fund this litigation, and then taking any financial benefits that eventuate. Advisers only benefit from a partial recovery of a proportion of the costs of the case, but only where ASIC wins. This is totally unfair and unreasonable,” he said.

“Enforcement action, which largely relates to Royal Commission actions, has risen from $9.5 million to $31.4 million. In addition, the allocation of indirect costs has risen from $13.8 million to $24.5 million. Undoubtedly, the increase in the allocation of indirect costs is closely related to the increased spending on litigation funding.” 

He said the increase in enforcement and indirect costs over the last two years, on a cumulative basis, accounted for an investment in litigation funding of as much as $50 million.

“If the litigation funding element of the ASIC funding levy was structured as a managed investment scheme, advisers would be caned for recommending this to their clients,” he said.

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"Disturbed" Love it Phil Anderson!! What is even more disturbing is that we've had a supposed pro-business party in government since 2013 and they've been complicit in the regulatory mess the industry is currently in.

HIghway robbery. By this time next year I'll be another casualty. Would really like the Government to wake up to themselves before then. Not just an urgent review and restructure of the levy, but a full refund of levies paid by advisers out of the penalties extracted from the genuine wrongdoers over the last three years. Any chance of that? Something about pigs flying?

Where's Minister For Everything, Accountable For Nothing Hume in all of this?

Go one step further not only are we litigation funders we are modern slaves - I'm not catastrophizing, read on.
- As of October 1, 2021 Regulatory guideline 78 requires advisers to report the conduct of other practices without pay and under threat of significant personal financial penalties.
Division 270 of the Criminal code states it is an offence through coercion, threat or deception to make a person provide labour or services, where a reasonable person in the position of the victim would not consider him or herself free to leave or cease providing the labour or services.
Would a reasonable person expect a financial adviser to lodge a report to the regulator without pay every time they see a financial services website without a clear FSG link (I see that all the time) or if they identify an administrative error or similar minor fault with an SOA issued to a new client by their previous adviser? These are not small items of work and we are not paid by ASIC to do this yet it will be expected of us soon under threat of significant fines.

If you run a quick estimate on the ASIC levy, it will not be what ASIC has published.

They have published the levy based on 21,308 advisers, when the number of advisers according to Adviser Ratings was 19,102 on 1 July.
I note, it was 20,674 advisers on January 1, 2021, so I don't know where ASIC got it's numbers from.

In short, the figure comes out to $3,500.55 per adviser.

What's the levy going to be next year? Where will this stop?

I wouldn't like to be the last financial adviser on the register.

it'll keep increasing each year there were 6,000 limited AFSL's issued they are now down to about 300 so it's only going to get worse.

thank god, I am out at the end of the year. this is just one of a long list of things that don't make it worthwhile to stay anymore.

Ah now I understand. It's like Highlander.


they'll have to increase the estimate by 10 to 15% so that is about $4k which will come in plus the $1,500 per adviser levy so $5.5k on top of everything else.

I think I will join ASIC, annual raises indexed to cpi come hell or high water doesn't matter plus 17% SG what's to lose

Given that we are funding their civil cases, we should all recieve a distribution if the case is successful.

Frydenberg is wilfully & determined to destroy Real Advisers.
Real Advisers must fight back and destroy Frydenberg.
Frydenberg has implemented 8 years of ever increasing pain, cost, red tape and theft for Advisers.
Frydenberg must GO !!!!

And my thesis that I am a type of second class citizen becomes stronger by the day...This is no joke. When you add it all up, we simply do not have the same liberties and economic freedoms as other citizens, not even close. Anyone entering this industry needs to have a very careful think about how the very basic and fundamental aspects of their economic liberty that they take for granted, will be totally upended by their arbitrary choice to pursue this awful career. My advice to any young person, don't do it, don't do it to yourself, don't do it to your family, it will be a source of immense regret for you. As a citizen there are far better opportunities available to you to pursue your goals and improve your life, without having the force of government hold you back every minute of every day for the rest of your life. The lack of respect, loss of dignity and sense that the rest of society plays be different rules to you is simply not worth it, you will despair daily. You really cannot think of a more devastating professional existence than this and it just doesnt stop, wave after wave after wave...I am exhausted.

Is there any way to determine if the fees charged under 'indirect costs' are fair and reasonable and represents value for money for the client?

I already rang the client who pays me $3,500.55 and told him and I redirect 100% his fee to the government.

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